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Detroit Institute of Arts and Motor City bankruptcy: deaccessioning fact and fiction, hope and reality

The recent filing by the City of Detroit for bankruptcy—the largest such municipal filing in history—has brought with it an unexpected art law twist. Namely: to what extent can, or should the collection of the Detroit Institute of Arts be used to satisfy the city’s creditors. As one might expect, the differences between what the city can do, what it should do, and what others can do to influence that decision have become hard to distinguish as the volume is raised. A review of some of the issues involved and the governing principles is in order. As rumors of the city’s bankruptcy circulated, speculation began about what would happen to the collection of DIA. And thus the dreaded “deaccession” debate began. This debate is essentially as follows: is art a fungible commodity that can and/or should be used in whatever way advances the mission of the institution (including selling it and using the proceeds to finance the museum’s operations), or do museums hold art in a public trust that must prioritize the collection and display of art? The latter view certainly holds sway among many in the museum community as an aspirational mattter, but its enforceability is often far less than they think.

First, the circumstances. Detroit, Michigan, long the cradle of the American automotive industry (and the ancestral home of the Art Law Report’s editor!), has struggled in recent decades with the now-familiar combination of automation, cross border labor forces, and economic and population decline. What was once a city of more than 1.5 million inhabitants now has fewer than half that. Tax revenues have been gutted, but many of the city’s vested obligations, like pension payments, remain and are chronically underfunded. In July, 2013, the city filed for bankruptcy, enunciating the basic concept that the city owes more money than it can, or can realistically expect, to pay.

A bankrupt debtor can take many forms, and the preferences and presumptions to which the debtor’s assets are subjected is a whole area of law that it takes some of my smartest partners to unpack. But at a basic level, to secure the protection of the Bankruptcy Court (which freezes all pending litigation against the debtor, for example), everything that the debtor has is put on the table. Some kinds of assets may be protected, but only if the code provides for that specifically.

The Detroit Institute of Arts is a venerable encyclopedic museum, that dates to the late-nineteenth century tradition of museums like the Cleveland Museum of Art, the Metropolitan Museum of Art, and the Museum of Fine Arts Boston: institutions that sprang from industrial patronage and civic engagement. As Detroit grew, and grew, so too did DIA. By the zenith of the automotive era, DIA had become one of the most significant collections in the country, housed in a 1927 Beaux Arts building in the heart of the city. Critically, however is that unlike those other museums, DIA is a public institution, owned by the City of Detroit.

The American Alliance of Museums (AAM) and the Association of Art Museum Directors (AAMD) both have considerable influence on their member institutions through various policies ranging from concerns about art stolen during World War II, to the deacccessioning questions that we are discussing today. The AAMD in particular has been the most vocal. Its paper “Art Museums and the Practice of Deaccessioning” sets forth two “fundamental principles” to be observed when considering a deaccession. They are:

The decision to deaccession is made solely to improve the quality, scope, and appropriateness of the collection, and to support the mission and long-term goals of the museum;

Proceeds from a deaccessioned work are used only to acquire other works of art—the proceeds are never used as operating fund, to build a general endowment, or for any other expenses.

In keeping with these policies, the AAMD has been consistent in policing its members for deaccessioning in other ways. The most famous examples of AAMD sanctions include those leveled at the Pennsylvania Academy of Fine Arts and the National Academy Museum.

But the biggest fish in the sea when it comes to deaccessioning remains the case of the Rose Art Museum at Brandeis University in 2009. In sum: after major donors were unable to continue their support of Brandeis during the economic downturn, the Brandeis University Board of Directors voted to sell the collection of the Rose Art Museum, which held a seminal collection of modern and contemporary American art. In the abstract, the Board valued the collection in the hundreds of millions, though little though seems to have been devoted to the effect that dumping so much art on the market at the same time would have (more on that below). An uproar ensued, which served mostly to confirm that the university, right or wrong, had the power to do just as it had proposed absent intervention by the Attorney General. But the embarrassment and backlash carried the day, and the university backed off and settled a related lawsuit. Lost in the shuffle, however, is that Brandeis never promised not to sell the art, only that it had no present intent to do so.

The Brandeis affair casts a long shadow over the deaccessioning debate. If it stood for the proposition that Brandeis likely could have sold the art, but had to consider its constituents’ opinions as to whether it should, what guidance does that offer for the DIA situation? First, the scenarios arise in very different contexts, even if financial difficulties more generally were the cause of both. Brandeis was taking stock of its options, whereas Detroit (and thus DIA) have surrendered their autonomy for the protection of the Bankruptcy Court. Some of the lessons of Brandeis may aid those that wish to protect DIA, however. No art can be sold without the permission of the Bankruptcy Court, and apart from the public trust argument (which should not be expected to carry much weight in court), dumping the collection on the market could serve to depress its value, which would be at odds with the estate’s obligation to maximize its assets. And, since it is the city, and not the museum, that is bankrupt, there is a trong argument that Detroit’s biggest needs: tax base and revenue—which be further undermined by the elimination of a world class tourist attraction, of which there are a dwindling number within Detroit’s city limits.

As you follow the conversation (and tune back in here for some analysis of the many, and serious voices in the debate), remember to distinguish between the aspirational and the practical. That is how the Bankruptcy Court will see it, and that is the only opinion that will matter in the end.

Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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